The UK’s chronic productivity crisis is worsening

REUTERS/Carlo Allegri

LONDON — The UK’s productivity crisis is worsening, according to a new report from accountants BDO.

The report comes a week after the Office for National Statistics published damning data illustrating how far Britain’s productivity lags behind other leading economies.

The BDO Business Trends report shows that firms are continuing to hire more staff but failing to increase their economic output, thereby dragging down levels of productivity.

Here is how the data looks:

BDO

The index is calculated by taking a weighted average of the results of the UK’s three main business surveys, where 100 represents the historical mean. The fact that the UK’s productivity output has fallen below the mean from last year and continued on a downwards trend this year shows the severe difficulty the UK is having in boosting productivity.

German and American workers now produce more in four days’ work than UK workers do in five

Productivity is measured in terms of economic output per hour worked in the UK. According to ONS figures released last week, Britain’s output per hour worked rose by 0.4% in the fourth quarter of last year.

That is a rate of growth which languishes far below pre-2008 crisis levels, and represents a significant problem for policy-makers: Without higher growth in hourly output, Britain’s economy will struggle to expand unless people work longer hours or unless more people are hired, which is difficult because the UK has a very high employment rate.

On top of that, ONS data showed that the UK slowdown in productivity growth has easily outstripped that the other G7 economies, to the point that German and American workers now produce more in four days’ work than UK workers do in five.

The question of what, exactly, is causing the UK slowdown continues to confound economists. Andy Haldane, the Bank of England’s chief economist, suggested in March that the principal cause was the number of mediocre British firms suffering from complacency which had been kept afloat since 2008 by loose monetary policy.

Peter Hemington, a partner at BDO, said more should be done to invest in technical education and infrastructure in the UK.

He said: “Poor productivity performance is one of the UK’s biggest economic challenges. The Chancellor spoke at length about solving the productivity puzzle when he delivered The Budget, announcing measures to invest in technical education and digital infrastructure to improve productivity.

“But his measures are very unlikely to be enough. The UK is a low investment economy with an education system that doesn’t always deliver the goods. Successive governments should be applauded for the hard work done to improve education in England, which has shown real progress in recent years.

“But technical education has not improved and there must be doubt as to whether this nettle is really being grasped. As for investment, the government should have the courage to borrow more to invest in the nation’s increasingly threadbare and out of date infrastructure.”